Coforge, LTIM, TechM, Tata Elxsi: Rating cuts hit IT stocks ahead of Q1 results

A couple of stocks such as LTIMindtree, Tata Elxsi, Tech Mahindra, HCL Technologies and LTIMindtree have been downgraded by brokerages, ahead of June quarter results. ICICI Securities has downgraded Coforge, LTIMindtree and Newgen to 'Reduce' from 'Hold' and Tata Exlsi to 'Sell'.

JM Financial has cut its rating on Tech Mahindra (TechM) to 'Hold' as it believes the recent run-up (18 per cent FYTD) limits upside. Emkay Global also downgraded TechM, along with HCL Tech. 

ICICI Securities' downgrade for LTIMindtree came as the stock has run up 13 per cent post announcement of large deal win of $450 million from a large global agribusiness company.

It downgraded Coforge on premium valuations post run up of 29 per cent in last two months. It cut EPS estimates for Tata Elxsi by up to 6 per cent FY FY26-28 led by cut in revenue estimates due to slower ramp-up of existing deals and continued challenges in auto vertical demand. 

"We continue to value Tata Elxsi at 30x on Q3FY27E-Q2FY28E EPS of Rs 150 to arrive at target of Rs 4,510. We downgrade the stock to SELL (earlier
Reduce) on continued challenges in auto vertical. The stock has run up 10 per cent in last two months and trades at premium valuation of 42x on FY27E EPS," it said.

This brokearge also downgraded Newgen amid premium valuation of 41 times on FY27E EPS against the backdrop of normalising revenue growth. 

While downgrading TechM and HCL Tech, Wipro said the NIFTY IT index has underperformed the broader markets by 2.9 per cent in the last 3 months due to elevated macro uncertainties and risks of earnings downgrade. 

"TechM is up 18 per cent FYTD (NSE-IT: 7.5 per cent), outperforming its larger peers. At 22x FY27E PER (Infosys: 21.5x), we find risk-reward balanced. Downgrade to HOLD. We remain constructive on its turnaround, but will wait for a better entry point," JM Financial said. 

Overall the quarterly results are expecteding be a mixed one for IT majors, with mid-tier services companies reporting strong growth, while large IT companies and ERD names seen disappointing the Street.

"We expect in-line EBIT. Deal wins will be strong, although not necessarily net new for the industry. Coforge, in our view, will lead the growth, followed by Persistent, Hexaware and Mphasis. TCS, Wipro and ERD names will likely face cuts in EPS after results. Infosys, Tech Mahindra, Hexaware, Coforge and Indegene are our key pick," Kotak Institutional Equities said.